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The process of making investment decisions in capital expenditures is known as capital budgeting. When expenditure is made and the benefits of which are expected to be received over period of time exceeding one year such an expenditure is stated as capital expenditure.
The expenditure is incurred at one point of time whereas benefits of the expenditure are realised at different points of time in future is the main characteristics of a capital budgeting. An expensive incurred for acquiring or improving the fixed assets, the benefits of which are expected to be received over a number of years in future, is the simple explanation of capital expenditure. To know more details about the characteristics of capital budgeting refer to Nature of Capital Budgeting Assignment Help.
Features of Capital Budgeting
• The exchange of current funds for the benefits to be achieved in future is the important aspect of capital budgeting.
• The future benefits are expected to be realised over a series of years, which differentiate capital budgeting decision from the ordinary day to day bearing decisions. Details of which can acquired from nature of capital budgeting assignment help.
• In capital budgeting, the funds are invested in non-flexible and long term activities.
• They usually have a long term and significant effect on the profitability of the concern and generally involves huge funds.
• They are irreversible and strategic investment decisions, involving large sums of money, major departure from the past practices of the firm, significant changes of the firm, expected earnings associated with high degree of risk, as compared to tactical investment decisions which involve a relatively small amount of fund that do not result in a major departure from the past practices of the firm. Nature of Capital Budgeting Assignment Help provides a better insight into the features of capital budgeting.
Need and Importance of Capital Budgeting
Capital budgeting are the planning for capital assets, these plays an important role in any organisation. They include various decisions related to
• Whether funds should or shouldn’t be invested in long term projects such as setting of an industry, purchase of plant and machinery etc.
• The analysis of the proposal for expansion or creating additional capacities in capital budgeting. For further information regarding the need and importance of capital budgeting refer to Nature of Capital Budgeting Assignment Help.
Limitations of Capital Budgeting
The following limitations has to be suffered due to the capital budgeting techniques
• The future is always so uncertain and the date collected for future may not be exact, so the techniques of capital budgeting requires estimation of futures cash inflows and outflows. And it is so obvious that the results based upon wrong data may not be good.
• There are certain factors which cannot be correctly quantified but which otherwise substantially influence the capital decision are: morale of the employees, goodwill of the firm, etc.
• In the evaluation of capital investment decisions, urgency is another limitation. To get the overall detailing of the limitations of capital budgeting refer to Nature of Capital Budgeting Assignment Help.
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